Regulatory Tsunami: Crypto and Fintech Giants Hit with Unprecedented $5.8 Billion in Fines
Cryptocurrency and fintech companies faced a wave of regulatory sanctions in 2023, surpassing penalties for traditional financial institutions, as authorities tied up a chain of illegal finance in the digital asset space which is growing rapidly. In-depth analysis shows that companies in the crypto and digital payments sectors were fined a total of $5.8 billion for compliance deficiencies these included inadequate customer checks, inadequate anti-money laundering policies malpractice, fines, and other non-compliance with economic crime laws.
This staggering $4.3 billion penalty of $5.8 billion was levied against crypto exchange Binance. The penalties imposed by the U.S. prosecutors considered the stern warning to be well above the $835 million in fines paid by traditional financial services firms last year, the lowest in a decade.
Dennis Kelleher, chief executive of Better Markets, a Washington-based organization that advocates for tighter regulation, said the figures reflect poor behavior in other areas of finance rather than growth in traditional banking in the 19th century.
“Widespread fraud and crime in the popular crypto sector has forced regulators and lawyers to take action,” he said.
Kelleher also called it an effort to “prevent terrible acts and try to prevent them from deteriorating.”
Data compiled by compliance software provider Fenergo showed that total fines for money laundering and other financial crime breaches rose more than 30% to $6.6 billion but the figure is still significantly lower than a 2015 record of $11.3 billion.
Facing Increased Fines, and Increased Legal Scrutiny
The total annual rate is heavily influenced by many millions of dollars in penalties. Notable examples include last year’s fine against Binance, BNP Paribas’ $8.9 billion fine for violations in 2015, and Goldman Sachs’ $5 billion fine in 2020 for Malaysia’s 1MDB government wealth banking issues.
Last year saw a sharp increase in the number of fines for cryptocurrency and payment providers. Cryptocurrency companies faced 11 fines compared to an average of less than two per year for the past five years. Payment companies received 27 penalties, about five times their annual average from 2018 to 2022. It’s worth mentioning that almost all of the payment groups penalized last year were under 20 years old.
Ramping Up Pressure on Paying Institutions
Regulatory agencies in various countries issued warnings to payment institutions to strengthen their practices. In particular, the UK’s Financial Conduct Authority last year identified “unacceptable” risks associated with the project.
Charles Kerrigan, a crypto expert and partner at law firm CMS, believes that fines are likely to decrease due to increased legal authority compared to the earlier days in the crypto sector.
“It’s gotten to the point now where law enforcement is openly saying they want people to use crypto to commit crimes but you have to be crazy to do that.”
“The punishment will happen because regulators want to make a statement about crypto.”
The truth is that as the cryptocurrency and digital payments sector grows, so does regulatory scrutiny. Payment companies and other participants in these markets must be prepared to meet the increased demand for compliance and transparency.
As the dust settles, the compliance conversation is poised to pick up. How these penalties affect future practices, regulatory mechanisms, and industry collaborations will define the way forward for both crypto and fintech nationally and globally.